San Diego’s Tourism Authority will likely suspend most advertising in the coming year and lay off employees because much of its funding is being held back due to ongoing litigation.

Although the city is collecting revenues from a 2 percent hotel room surcharge dedicated to tourism promotion, it’s looking like the majority of that money will be unavailable for the next year. That’s because most hotel owners are declining to sign required waivers and indemnification agreements meant to protect San Diego’s general fund in the event the room levy is overturned by a judge.

Only as those agreements are signed will the city release money to the hotelier-run Tourism Marketing District, which doles out funds for tourism promotion. The bulk of the funding goes to the Tourism Authority, which relies on that money for 80 percent of its budget.

Currently, just 23 waiver pacts have been turned in out of more than 220 requested. Those that have been signed account for only 12 percent of the expected $28.5 million in revenues that were forecast for the 2013-14 fiscal year. Even if tourism officials succeed in bumping up the return rate to 15 percent, the Tourism Authority would receive only a fraction of the funding it normally receives — $3.6 million compared to last year’s $19.6 million, according to projections prepared by the marketing district. The projection includes carry-over money from the 2013 fiscal year.

Without a robust sales force and advertising to promote San Diego as a destination for leisure and business travelers, the city could face a substantial drop in tourism tax revenue, which it relies on to help fund municipal services, said Tourism Authority CEO Joe Terzi. He would not speculate, however, as to how many of his 80 employees might have to be let go. Staff members charged specifically with securing long-term bookings at the convention center are paid for from a separate pot of city money and would be unaffected.

“We’re facing substantial layoffs at the current levels of funding, and we won’t have any advertising going forward,” Terzi said. “At this point, the planning we’re going through touches every single aspect of the organization. We know we can’t keep the entire organization intact.

“If we don’t have the funding we need, it’s not only our organization, but also the hotels, the restaurants that will all be negatively impacted.”

Uncertainty over future funding for the city’s tourism marketing operation comes only a few months after hoteliers and Mayor Bob Filner ended a protracted feud over an agreement governing the operation of the marketing district. Filner had sought guaranteed funding for a planned Balboa Park centennial celebration and stronger financial protections for the city in connection with the hotel assessment litigation. Because funding wasn’t available during that period, very little television advertising was done to promote the summer season.

The waiver and indemnification agreements now being sought not only ask hotels to forfeit their right to seek refund requests if the hotel levy is found illegal, but to also cover future litigation costs. Attorneys for the city and the Tourism Marketing District are trying to get a judge to dismiss lawsuits challenging the hotel room assessment.